SECURITIES and EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A-2
CURRENT REPORT PURSUANT
TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): December 6, 2002
KOGER EQUITY, INC.
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(Exact name of registrant as specified in its charter)
FLORIDA
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(State or other jurisdiction of incorporation)
1-9997 59-2898045
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(Commission File Number) (IRS Employer Identification No.)
225 NE Mizner Boulevard, Suite 200
Boca Raton, Florida 33432
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(Address of principal executive offices) (Zip Code)
(561) 395-9666
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(Registrant's telephone number, including area code)
433 Plaza Real, Suite 335, Boca Raton, Florida 33432
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(Former name or former address, if changed since last report)
Koger Equity, Inc. (the "Company") is amending its Form 8-K/A filed on February
19, 2003, to include an unaudited condensed statement of operations for the
Lakes on Post Oak for the eleven months ended November 30, 2002. This
information was only recently obtained from the sellers of the Lakes on Post Oak
and was not a basis for determining its purchase price (see Item 2).
The Company previously amended its Form 8-K filed on December 17, 2002, to
include (i) a Statement of Revenues and Certain Expenses for The Lakes on Post
Oak for the year ended December 31, 2001 as required by Rule 3-14 of Regulation
S-X of the Securities and Exchange Commission and (ii) unaudited pro forma
financial statements including (a) the Company's pro forma balance sheet as of
December 31, 2001, as if the acquisition of The Lakes on Post Oak occurred on
December 31, 2001, (b) the Company's pro forma statement of operations for the
year ended December 31, 2001, as if the acquisition of The Lakes on Post Oak
occurred on January 1, 2001, and (c) a pro forma statement of estimated taxable
operating results and estimated cash to be made available by operations of the
Company for the year ended December 31, 2001, as if the acquisition of The Lakes
on Post Oak occurred on January 1, 2001.
Item 2. Acquisition or Disposition of Assets.
On December 6, 2002, the Company acquired The Lakes on Post Oak (the "Property")
in Houston, Texas for approximately $102 million. The Property is comprised of
three office buildings adjacent to the Galleria Mall, which contain
approximately 1.2 million square feet of rentable space. The funds required for
this acquisition were drawn from a $77 million mortgage secured by the Property
and from the Company's secured revolving credit facility. The Property was
acquired from 4849 Greenville I, Ltd. and West Oak/Nissei Associates, unrelated
third parties.
The Company considered various factors in determining the price to be paid for
this acquisition. Factors considered included the nature of the tenants and
terms of leases in place, opportunities for alternative and new tenancies,
historical and expected cash flows, occupancy rates, current operating costs on
the Property and anticipated changes therein under Company ownership, the
physical condition and location of the Property, the need for capital
improvements, the anticipated effect on the Company's financial results, and
other factors. The Company took into consideration capitalization rates at which
it believed other comparable properties had recently sold. However, the Company
determined the price it was willing to pay primarily on the factors discussed
above relating to the Property itself and its fit into the Company's existing
operations. No separate independent appraisal was obtained in connection with
this acquisition. The Company, after investigation, is not aware of any material
factors, other than those discussed above, that would cause the financial
information reported not to be necessarily indicative of future operating
results. The Company intends to lease office space in the Property to tenants as
it does the other office buildings contained in its portfolio. The Property will
be managed and leased by a third party management company.
1
Item 7. Financial Statements and Exhibits
Listed below are the financial statements, pro forma financial information and
exhibits, if any, filed as part of this report.
(a) Financial Statements of Real Estate Acquired.
Statement of Revenues and Certain Expenses of The Lakes on Post Oak
for the year ended December 31, 2001.
Unaudited Condensed Statement of Operations of The Lakes on
Post Oak for the eleven months ended November 30, 2002.
2
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders of
Koger Equity, Inc.
Boca Raton, Florida:
We have audited the accompanying statement of revenues and certain expenses of
the property known as The Lakes on Post Oak (the "Property") for the year ended
December 31, 2001. On December 6, 2002, the Property was acquired by Koger Post
Oak Limited Partnership, a wholly owned subsidiary of Koger Equity, Inc. This
financial statement is the responsibility of the Property's former management.
Our responsibility is to express an opinion on the financial statement based on
our audit.
We conducted our audit in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statement is free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statement. An audit also includes assessing the accounting principles used and
the significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
The accompanying statement of revenues and certain expenses was prepared for the
purpose of complying with the rules and regulations of the Securities and
Exchange Commission (for inclusion in the filing of a Form 8-K/A of Koger
Equity, Inc. dated December 6, 2002 as a result of the acquisition of the
Property). Material amounts, described in Note 1 to the statement of revenues
and certain expenses, that would not be comparable to those resulting from
future operations of the Property are excluded and the statement is not intended
to be a complete presentation of the Property's revenues and expenses.
In our opinion, the financial statement referred to above presents fairly, in
all material respects, the revenues and certain expenses of the Property for the
year ended December 31, 2001 in conformity with accounting principles generally
accepted in the United States of America.
DELOITTE & TOUCHE LLP
Certified Public Accountants
West Palm Beach, Florida
February 7, 2003
3
THE LAKES ON POST OAK- HOUSTON, TEXAS
STATEMENT OF REVENUES AND CERTAIN EXPENSES
YEAR ENDED DECEMBER 31, 2001
REVENUES:
Base rental income $ 17,189,224
Operating expense recovery 1,906,021
Parking, antennae, and other income 781,955
-------------------
Total revenues 19,877,200
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CERTAIN EXPENSES:
Property operating 6,007,319
Real estate and other taxes 3,088,900
Management costs and fees 1,028,193
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Total certain expenses 10,124,412
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REVENUES IN EXCESS OF CERTAIN EXPENSES $ 9,752,788
============
See notes to statement of revenues and certain expenses.
4
THE LAKES ON POST OAK- HOUSTON, TEXAS
NOTES TO STATEMENT OF REVENUES AND CERTAIN EXPENSES
YEAR ENDED DECEMBER 31, 2001
1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Lakes on Post Oak (the "Property"), three office buildings containing
approximately 1.2 million square feet and located in Houston, Texas, was
acquired by Koger Post Oak Limited Partnership, a wholly owned subsidiary of
Koger Equity, Inc. (the "Company") on December 6, 2002. The statement of
revenues and certain expenses includes information related to the operations of
the Property for the year ended December 31, 2001 as recorded by the Property's
previous owners, 4849 Greenville I, Ltd. and West Oak/Nissei Associates, subject
to the adjustments described below.
The accompanying historical financial statement information is presented in
conformity with Rule 3-14 of Regulation S-X of the Securities and Exchange
Commission. Accordingly, the financial statement is not representative of the
actual operations for the year ended December 31, 2001 as certain expenses,
which may not be comparable to the expenses expected to be incurred in the
future operations of the Property, have been excluded. Expenses excluded consist
of interest, depreciation and amortization, and other costs not directly related
to the future operations of the acquired property.
Management's Use of Estimates - The preparation of financial statements in
conformity with accounting principles generally accepted in the United States of
America requires management to make estimates and assumptions that affect the
reported amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
Rental Income - Rental income is recognized on a straight-line basis over
the terms of the related leases.
Property Operating Expenses - Property operating expenses consist primarily
of utilities, insurance, repairs and maintenance, security and safety, cleaning,
bad debts and other administrative expenses.
Management Costs and Fees - The Property was managed by a third party
manager for a property management fee of four percent of rental and other
revenues plus reimbursement of personnel and other costs related to management
of the properties.
5
THE LAKES ON POST OAK- HOUSTON, TEXAS
NOTES TO STATEMENT OF REVENUES AND CERTAIN EXPENSES
YEAR ENDED DECEMBER 31, 2001
2. OPERATING LEASES
Operating revenue is principally obtained from business tenant rentals
under operating leases. Future minimum rentals under all tenant operating leases
as of December 31, 2001 are as follows:
Year ending December 31, Amount
2002 $ 17,044,769
2003 15,303,772
2004 12,103,976
2005 10,090,337
2006 9,065,322
Thereafter 21,367,625
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Total $ 84,975,801
=============
For the year ended December 31, 2001, Bechtel Corporation contributed
approximately 39% of the Property's base rental revenues.
6
THE LAKES ON POST OAK- HOUSTON, TEXAS
UNAUDITED CONDENSED STATEMENT OF OPERATIONS
ELEVEN MONTHS ENDED NOVEMBER 30, 2002
REVENUES:
Base rental income $ 14,682,101
Operating expense recovery 944,318
Parking, antennae, and other income 749,962
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Total operating revenues 16,376,381
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EXPENSES:
Property operating 4,754,227
Real estate and other taxes 2,763,648
Management costs and fees 449,032
Depreciation 3,274,644
General and administrative 896,312
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Total operating expenses 12,137,863
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NET OPERATING INCOME 4,238,518
OTHER INCOME AND EXPENSE:
Interest income 69,529
Mortgage and loan interest (2,681,483)
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Total other income and expense (2,611,954)
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NET INCOME $ 1,626,564
============
See notes to unaudited condensed statement of operations.
7
THE LAKES ON POST OAK- HOUSTON, TEXAS
UNAUDITED CONDENSED STATEMENT OF OPERATIONS
ELEVEN MONTHS ENDED NOVEMBER 30, 2002
1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Lakes on Post Oak (the "Property"), three office buildings containing
approximately 1.2 million square feet and located in Houston, Texas, was
acquired by Koger Post Oak Limited Partnership, a wholly owned subsidiary of
Koger Equity, Inc. (the "Company") on December 6, 2002. The unaudited condensed
statement of operations includes information related to the operations of the
Property for the eleven months ended November 30, 2002 as recorded by the
Property's previous owners, 4849 Greenville I, Ltd. and West Oak/Nissei
Associates, subject to the adjustments described below.
Management's Use of Estimates - The preparation of financial statements in
conformity with accounting principles generally accepted in the United States of
America requires management to make estimates and assumptions that affect the
reported amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
Rental Income - Rental income is recognized on a straight-line basis over
the terms of the related leases.
Depreciation - In the Property's historical financial statements,
depreciation expense was not recognized for one of the buildings as of November
30, 2002. Therefore, the Company has increased the Property's historical
depreciation expense by approximately $1.1 million.
Property Operating Expenses - Property operating expenses consist primarily
of utilities, insurance, repairs and maintenance, security and safety, cleaning,
bad debts and other administrative expenses.
Management Costs and Fees - The Property was managed by a third party
manager for a property management fee of four percent of rental and other
revenues plus reimbursement of personnel and other costs related to management
of the properties.
8
(b) Pro Forma Financial Statements
The following unaudited pro forma financial statements set forth
(i) the pro forma balance sheet as of December 31, 2001, as if the
acquisition occurred on December 31, 2001, and (ii) the pro forma
statement of operations for the year ended December 31, 2001, as
if the acquisition occurred on January 1, 2001. The pro forma
financial statements are based upon assumptions contained in the
notes thereto and should be read in conjunction with such notes.
The following unaudited pro forma financial statements may not
necessarily reflect the results of operations or financial
position of the Company which would have actually resulted had the
acquisition occurred as of the date and for the periods indicated,
nor should they be taken as indicative of the future results of
operations or the future financial position of the Company.
Differences would result from various factors, including but not
limited to changes in the Property's occupancy, rental rates and
rental expenses, and changes in the interest rates assumed on the
Company's secured revolving credit facility and the mortgage on
the Property.
9
KOGER EQUITY, INC.
UNAUDITED PRO FORMA BALANCE SHEET
December 31, 2001
(In Thousands)
Historical Pro Forma Pro Forma
12/31/2001 Adjustments 12/31/2001
----------------- ----------------- -----------------
ASSETS
Operating properties:
Real estate $ 660,204 $ 103,065 (a) $ 763,269
Furniture and equipment
3,082 3,082
Accumulated depreciation (123,999) (123,999)
----------------- ----------------- -----------------
Operating properties - net 539,287 103,065 642,352
Undeveloped land held for investment 13,779 13,779
Undeveloped land held for sale, net 76 76
Cash and cash equivalents 113,370 (3,000) (a) 110,370
Restricted cash 13,340 (a) 13,340
Accounts receivable, net 11,574 11,574
Cost in excess of fair value of net assets acquired - net 595 595
Other assets 11,904 1,232 (a) 13,136
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TOTAL ASSETS $ 690,585 $ 114,637 $ 805,222
================= ================= =================
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Mortgages and loans payable $ 248,683 $ 110,873 (a) $ 359,556
Accounts payable 4,962 4,962
Accrued real estate taxes payable 1,007 1,007
Accrued liabilities - other 9,206 2,752 (a) 11,958
Dividends payable 44,159 44,159
Advance rents and security deposits 5,103 1,012 (a) 6,115
----------------- ----------------- -----------------
Total Liabilities 313,120 114,637 427,757
----------------- ----------------- -----------------
Minority interest 22,923 22,923
----------------- ----------------- -----------------
Shareholders' Equity:
Common stock 297 297
Capital in excess of par value 469,779 469,779
Notes receivable from stock sales (5,066) (5,066)
Retained earnings 21,180 21,180
Treasury stock, at cost (131,648) (131,648)
----------------- ----------------- -----------------
Total Shareholders' Equity 354,542 354,542
----------------- ----------------- -----------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 690,585 $ 114,637 $ 805,222
================= ================= =================
See accompanying notes to unaudited pro forma financial statements.
10
KOGER EQUITY, INC.
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
For the year ended December 31, 2001
(In Thousands except per Share Data)
Historical Pro Forma Pro Forma
2001 Adjustments 2001
----------------- ----------------- -----------------
REVENUES
Rental and other rental services $ 165,623 $ 19,877 (a) $ 185,500
Management fees 4,080 (b) 4,080
Interest 776 (30) 746
Income from Koger Realty Services, Inc. 81 81
----------------- ----------------- -----------------
Total revenues 170,560 19,847 190,407
----------------- ----------------- -----------------
EXPENSES
Property operations 61,608 10,124 (a) 71,732
Depreciation and amortization 36,007 2,446 (c) 38,453
Mortgage and loan interest 25,204 7,099 (d) 32,303
General and administrative 8,412 8,412
Direct cost of management fees 3,378 3,378
Other 189 189
----------------- ----------------- -----------------
Total expenses 134,798 19,669 154,467
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INCOME BEFORE GAIN ON SALE OF ASSETS,
INCOME TAXES AND MINORITY INTEREST
35,762 178 35,940
Gain on sale of assets 39,189 39,189
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INCOME BEFORE INCOME TAXES
AND MINORITY INTEREST 74,951 178 75,129
Income tax provision 684 55 (e) 739
----------------- ----------------- -----------------
INCOME BEFORE MINORITY INTEREST 74,267 123 74,390
Minority interest 1,044 1,044
----------------- ----------------- -----------------
NET INCOME $ 73,223 123 $ 73,346
================= ================= =================
EARNINGS PER COMMON SHARE:
Basic $ 2.76 $ 2.77
================= =================
Diluted $ 2.75 $ 2.76
================= =================
WEIGHTED AVERAGE COMMON SHARES:
Basic 26,517 26,517
================= =================
Diluted 26,610 26,610
================= =================
See accompanying notes to unaudited pro forma financial statements.
11
KOGER EQUITY, INC.
NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS
1. Basis of Presentation
On December 6, 2002, Koger Post Oak Limited Partnership, a wholly-owned
subsidiary of Koger Equity, Inc. (the "Company"), acquired The Lakes on Post Oak
(the "Property"), three office buildings containing approximately 1.2 million
square feet and located in Houston, Texas. This acquisition was funded with the
Company's existing cash reserves, a $77.0 million mortgage secured by the
Property (a portion of which was set aside by the lender as restricted cash to
fund future capital improvements and leasing costs), and $33.9 million from the
Company's secured revolving credit facility. The Company intends to lease office
space in the Property to tenants as it does the other office buildings contained
in its portfolio. The Property will be managed and leased by a third party
management company.
2. Unaudited Pro Forma Balance Sheet
The unaudited pro forma balance sheet as of December 31, 2001 is based on
the historical balance sheet for the Company presented in the Annual Report on
Form 10-K for the year ended December 31, 2001. The unaudited pro forma balance
sheet includes adjustments assuming this acquisition occurred as of December 31,
2001. Significant pro forma adjustments in the unaudited pro forma balance sheet
include the following:
(a) The Company purchased the Property, located in Houston, Texas, for
$102 million plus acquisition costs. This acquisition was funded
with the Company's existing cash reserves, a $77.0 million mortgage
secured by the Property (a portion of which was set aside by the
lender as restricted cash to fund future capital improvements and
leasing costs), and $33.9 million from the Company's secured
revolving credit facility.
The Company intends to make capital improvements of approximately
$6.9 million and $5.8 million to the Property during the year ended
December 31, 2003 and thereafter, respectively. These expenditures
will be funded from the Company's restricted cash balances as
necessary based upon leasing activity at the Property.
12
KOGER EQUITY, INC.
NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS (continued)
3. Unaudited Pro Forma Statement of Operations
The unaudited pro forma statement of operations for the year ended
December 31, 2001 is based on the historical statement of operations for the
Company presented in the Annual Report on Form 10-K for the year ended December
31, 2001. The unaudited pro forma statement of operations includes adjustments
assuming that the acquisition of the Property occurred as of January 1, 2001.
Significant pro forma adjustments in the unaudited pro forma statement of
operations include the following:
(a) Adjustment required for the historical rental revenues and operating
expenses for the Property. Operating expenses include management
costs and fees calculated using the historical management costs of
the Property. The Property was managed by a third party manager for
a property management fee of four percent of rental and other
revenues plus reimbursement of personnel and other costs related to
management of the properties. The Company has engaged a third-party
manager to operate the Property at a management fee rate of 1.35
percent of total rental and other revenues of the Property.
Approximately 30% of the Property's rentable office space was
vacant at the time of the Company's acquisition of the Property.
The Company expects to lease substantially all of this vacant space
over the next three years.
(b) Adjustment required to reflect forfeited interest income on cash paid
for the Property of approximately $3.0 million. The estimated average
interest rate used to calculate this adjustment was 1.0 percent.
(c) Adjustment required to reflect depreciation on the Property, based
on the total cost of the acquisition. The Company uses the
straight-line method for depreciation and amortization using an
estimated life of 39 years for the Property.
(d) Adjustment required to reflect interest expense related to the
amounts drawn on the Property's mortgage ($77.0 million) and the
Company's secured revolving credit facility ($33.9 million) to fund
the acquisition of the Property. The estimated average interest rate
on the Property's mortgage and the Company's secured revolving
credit facility were 6.8 percent and 5.5 percent, respectively.
(e) Adjustment required to reflect applicable federal income and state
franchise taxes on the Property's taxable income. The Property's
taxable income has been reduced by ninety percent for dividends paid
to the Company's shareholders.
13
KOGER EQUITY, INC.
UNAUDITED STATEMENT OF ESTIMATED TAXABLE OPERATING RESULTS
AND ESTIMATED CASH TO BE MADE AVAILABLE BY OPERATIONS
FOR THE TWELVE MONTHS ENDED DECEMBER 31, 2001
(In Thousands)
Revenues
Rental and other rental services $183,901
Management fees 4,080
Interest 746
------------
Total revenues 188,727
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Expenses
Property operations 72,029
Depreciation and amortization 29,979
Mortgage and loan interest 32,303
General and administrative 8,621
Direct cost of management fees 3,378
Other 189
Compensation - exercise of stock options 365
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Total expenses 146,864
---------
Estimated Taxable Operating Income 41,863
Add Back: Depreciation and Amortization 29,979
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Estimated Cash To Be Made Available By Operations $ 71,842
=========
Note 1: This statement of estimated taxable operating results and
estimated cash to be made available by operations is an
estimate of operating results of the Company for the twelve
month period ended December 31, 2001 assuming that the
acquisition of the Lakes on Post Oak occurred on the first
day of the twelve month period. However, this statement does
not purport to reflect actual taxable results for any period.
Note 2: Tax depreciation was determined based upon the actual tax
depreciation for the Company's existing portfolio and based
upon the assumption that the acquisition of the Lakes on Post
Oak occurred on the first day of the twelve month period.
14
(c) Exhibits
EXHIBIT INDEX
The following designated exhibits are filed herewith:
Exhibit
Number Description of Exhibit
10(a) Koger Post Oak Partnership Limited Partnership Agreement, dated December 2, 2002, Between Koger
Post Oak, Inc. and Koger Equity, Inc. (the "Company").
10(b) Loan Agreement dated as of December 6, 2002
Between Koger Post Oak Limited Partnership,
as Borrower, (the "Partnership") and Column
Financial, Inc., as Lender (the "Lender").
10(c) Deed of Trust and Security Agreement, dated as of December 6, 2002, given by the Partnership to
David Parnell, as Trustee for the benefit of the Lender.
10(d) Promissory Note, dated December 6, 2002, issued by the Partnership payable to the Lender, in the
principal amount of $77,000,000.
10(e) Assignment of Leases and Rents dated as of December 6, 2002, given by the Partnership to the
Lender.
10(f) Guaranty Agreement, dated December 6, 2002, executed by the Company for the benefit of the Lender.
10(g) Assignment of Management Agreement and
Subordination of Management Fees, dated as
of December 6, 2002, given by the
Partnership to Lender and consented and
agreed to by Cottonwood Partners Management
Ltd. (the "Manager").
10(h) Assignment of Management Agreement and Subordination of Management Fees, dated as of December 6,
2002, given by the Partnership to Lender and consented and agreed to by Hines Interests Limited
Partnership (the "Manager").
10(i) Collateral Assignment of Interest Rate Protection Agreement, dated as of December 6, 2002, by the
Partnership in favor of the Lender.
10(j) Deposit Account Agreement, dated as of December 6, 2002, by and among the Partnership and the
Lender.
15
10(k) Environmental Indemnity Agreement, dated as of December 6, 2002, by the Partnership in favor of
the Lender.
23 Consent of Deloitte and Touche LLP.
99 Koger Equity, Inc. News Release dated December 10, 2002 which is Exhibit 99 to the Company's
current report on Form 8-K dated December 10, 2002 which Exhibit is incorporated herein by
reference.
16
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
KOGER EQUITY, INC.
Dated: April 14, 2003 By: /s/ STEVEN A. ABNEY
----------------------------
Steven A. Abney
Title: Vice President, Finance
17
Exhibit 23
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statement No.
33-55179 of Koger Equity, Inc. on Form S-3, Registration Statement No. 33-54617
of Koger Equity , Inc. on Form S-8, Registration Statement No. 333-20975 of
Koger Equity, Inc. on Form S-3, Registration Statement No. 333-23429 of Koger
Equity, Inc. on Form S-8, Registration Statement No. 333-37919 of Koger Equity,
Inc. on Form S-3, Registration Statement No. 333-33388 of Koger Equity, Inc. on
Form S-8 and Registration Statement No. 333-38712 of Koger Equity, Inc. on Form
S-8 of our report dated February 7, 2003, on the statement of revenues and
certain expenses of The Lakes on Post Oak for the year ended December 31, 2001
appearing in this Current Report on Form 8-K/A-2 of Koger Equity, Inc., dated
December 6, 2002.
DELOITTE & TOUCHE LLP
West Palm Beach, Florida
April 14, 2003
18